cctsprior to preparing the statements.) Events related to the acquisition, use,
ID: 2512509 • Letter: C
Question
cctsprior to preparing the statements.) Events related to the acquisition, use, and disposal of a tangible plant e8-9A Exercisoasset: straight-line depreciation xi Service purchased a new auto to use as a taxi o n January 1, 2016, for $36,000. In addi- aid sales tax and title fees of s1,200 for the vehicle. The taxi is expected to have a tion, life and a salvage value of $4,000 five-year Required Using the straight-line method, compute the depreciation expense for 2016 and 2017. a. h Prepare the general journal entry to record the 2016 are the general journal entry to record the 2016 depreciation. Assume t the sale of the taxi in 2018. C. ournal entry forExplanation / Answer
a. Calculation of depreciation
(1) Total cost of taxi
Taxi cost = $36,000
Add: Sales Tax and Title fees = $1,200
Therefore, total cost of Taxi = $37,200
(2) Total depreciable cost
Total cost of taxi = $37,200
Less: Salvage value after 5 years = $4,000
Therefore, total depreciable cost = $33,200
Depreciation expense for 2016 and 2017:
For the year 2016 = Total Depreciable cost/Number of years of life
= $33,200/5 years
= $6,640
For the year 2017 = Total Depreciable cost/Number of years of life
= $33,200/5 years
= $6,640
b. Journal entry to record the 2016 depreciation
Depreciation on Taxi A/c Debit $6,640
To Taxi A/c Credit $6,640
(Being entry passed to reduce taxi value for the depreciation of 2016)
Profit & Loss A/c Debit $6,640
To Deprecition on Taxi A/c Credit $6,640
(Being depreciation on taxi charged to profit & loss account)
c. Journal entry for sale of Taxi in 2018
Date of purchase = January 1, 2016
Date of Sale = January 1, 2018 (i.e. 2 years from the date of purchase)
Sale price = $22,000
Net book value of car as on the date of sale = Purchase price - Depreciation for 2016 - Depreciation for 2017
= $37,200 - $6,640 - $6,640
= $23,920 (This is the net book value of Taxi as at January 1, 2018).
Therefore, loss on sale of Taxi = $23,920 - $22,000
= $1,920
Journal Entries
Bank A/c debit $22,000
To Taxi A/c Credit $22,000
(Being sale of taxi recorded)
Loss on sale of Taxi A/c Debit $1,920
To Taxi A/c Credit $1,920
(Being loss on sale of taxi recorded)
Profit & Loss A/c Debit $1,920
To Loss on sale of Taxi A/c Credit $1,920
(Being loss on sale of taxi charged to profit & loss account).
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